DBRS Morningstar Downgrades Credit Ratings on Four Classes of WFRBS Commercial Mortgage Trust 2013-C18

DBRS, Inc. (DBRS Morningstar) downgraded its credit ratings on four classes of Commercial Mortgage Pass-Through Certificates, Series 2013-C18 issued by WFRBS Commercial Mortgage Trust 2013-C18 as follows:

-- Class B at to BBB (sf) from AA (low) (sf)
-- Class C to BB (sf) from A (low) (sf)
-- Class PEX to BB (sf) from A (low) (sf)
-- Class D to C (sf) from CCC (sf)

In addition, DBRS Morningstar confirmed its credit ratings on the following classes:

-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class E at C (sf)
-- Class F at C (sf)

The trends on Classes A-4, A-5, A-S, A-SB, and X-A remain Stable. DBRS Morningstar changed the trends on Classes B, C, and PEX to Negative from Stable. Classes D, E, and F are assigned credit ratings that typically do not carry trends in commercial mortgage backed securities (CMBS) credit ratings.

The downgrades and the trend changes follow a period of unpaid interest to high investment-grade bonds and increased realized losses, which have eroded credit support. Two assets, HIE at Magnificent Mile (Prospectus ID#10, 3.5% of the pool) and Cedar Rapids Office Portfolio (Prospectus ID#9, 3.4% of the pool), remain in special servicing and both are real estate owned (REO). Since the last credit rating action, HIE at Magnificent Mile has been deemed to be nonrecoverable and the appraised value of Cedar Rapids Office Portfolio has been cut nearly in half. Between these two loans, cumulative nonrecoverable advances totaled $8.1 million as of August 2023.

There are currently 43 nondelinquent loans remaining in the pool contributing scheduled principal and interest. With the August 2023 remittance, the master servicer recouped approximately $2.9 million of its outstanding advances from distributable interest, shorting the unrated Class G certificate, all the way up to the Class A-S certificate, which is rated AAA (sf) by DBRS Morningstar. Unpaid interest has been fully reimbursed to the Class A-S certificate with the September 2023 remittance, and partially to the Class B certificate. Shortfalls continue to accumulate for all classes below Class B. The downgrades for Classes B, C, and PEX were largely driven by unpaid interest, as DBRS Morningstar has little-to-no tolerance for interest shortfalls at the higher credit rating categories.

In addition, the master servicer passed through $1.9 million in realized losses with the August 2023 remittance, adding to the $5.3 million in losses that were passed through with the July 2023 remittance. According to the distribution statements, the servicer diverted distributable principal in an effort to repay prior shortfalls. Since the last credit rating action, the trust has realized approximately $7.2 million in losses, further reducing credit support to rated bonds. There is uncertainty surrounding the servicer’s plans to recoup the remaining non-recoverable advances as well as the timing of reimbursement and ultimate repayment of the bonds. As a result, DBRS Morningstar has also downgraded Class D and revised the trends on Classes B, C, and PEX to Negative from Stable. DBRS Morningstar will continue to monitor the deal’s wind down, as all of the outstanding loans are scheduled to mature within the next few months. While DBRS Morningstar expects that the majority of these loans will repay from the trust, the potential for adverse selection and increased concentration highlights the binary risks in the current capital structure.

HIE at Magnificent Mile, secured by a limited-service hotel located within the River North neighborhood of Chicago, became REO in December 2022. The performance declines preceded the Coronavirus Disease (COVID-19) pandemic and the property was most recently appraised in March 2023 at a value of $15.0 million, up slightly from the August 2022 appraised value of $12.9 million, but approximately 58.7% below the issuance value of $36.3 million. Based on the most recent value and the trust’s exposure to the loan, DBRS Morningstar expects a loss severity approaching 100% at resolution.

The Cedar Rapids Office Portfolio has been REO since June 2020. The loan is secured by two cross-collateralized Class A office buildings in Cedar Rapids, Iowa. The buildings were most recently appraised in June 2023 for just under $6.0 million, down from the October 2022 appraised value of $10.1 million and 84.0% below the issuance appraised value of $36.2 million. Since the last credit rating action, outstanding advances for this loan were deemed nonrecoverable. Based on the implied LTV of more than 300%, DBRS Morningstar expects a full loss of the loan amount upon liquidation.

At issuance, DBRS Morningstar assigned an investment-grade shadow rating to Garden State Plaza (Prospectus ID#1, 24.9% of the pool). DBRS Morningstar confirmed that the performance of this loan remains consistent with investment-grade loan characteristics given the property quality, continued high sales, and historically stable cash flow and occupancy trends.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/416784 (July 4, 2023).

Class X-A is an interest-only (IO) certificate that references a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

All credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (March 16, 2023; https://www.dbrsmorningstar.com/research/410912).

Other methodologies referenced in this transaction are listed at the end of this press release.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

DBRS Morningstar notes that a sensitivity analysis was not performed for this review as the transaction is in wind-down, with only a few loans remaining. In those cases, the DBRS Morningstar credit ratings are typically based on a recoverability analysis for the remaining loans.

DBRS, Inc.
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Chicago, IL 60602 USA
Tel. +1 312 332-3429

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

North American CMBS Multi-Borrower Rating Methodology (March 16, 2023)/North American CMBS Insight Model v 1.1.0.0 (https://www.dbrsmorningstar.com/research/410913)

Rating North American CMBS Interest-Only Certificates (December 19, 2022; https://www.dbrsmorningstar.com/research/407577)

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023; https://www.dbrsmorningstar.com/research/420982)

North American Commercial Mortgage Servicer Rankings (August 23, 2023; https://www.dbrsmorningstar.com/research/419592)

Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023; https://www.dbrsmorningstar.com/research/415687)

Legal Criteria for U.S. Structured Finance (December 7, 2022;
https://www.dbrsmorningstar.com/research/407008)

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].